Financial Sector Secures 2.3 Trillion Won in Funding This Year

Issuance of New Capital Securities, etc.
Hana Financial Expands by 10 Trillion Won
KB Financial Also Issues Subordinated Bonds
Enhancing BIS Ratio and Securing Soundness
Funds Secured for M&A Purposes

[Asia Economy Reporter Jo Gang-wook] It has been revealed that the four major domestic financial holding companies and banks have raised over 2 trillion KRW in capital within a short period of less than three months since the beginning of this year. This is interpreted as securing funds for mergers and acquisitions (M&A) of non-bank financial companies amid fierce competition to secure financial soundness, comply with the revised loan-to-deposit ratio regulations, and find new growth engines.

According to the financial sector on the 4th, among the four major financial holding companies, KB Financial Group, Woori Financial Group, and Hana Financial Group, as well as their main affiliated banks?Shinhan Bank, Hana Bank, and Woori Bank?a total of six companies have raised capital amounting to 2.39 trillion KRW through the issuance of hybrid capital securities and subordinated bonds since the beginning of this year.

Among them, Hana Financial Group has been the most aggressive in capital expansion this year. Hana Financial Group announced through a public disclosure yesterday that it decided to issue 500 billion KRW worth of amortizing contingent convertible bonds (hybrid capital securities). Hana Financial Group explained, "The capital increase aims to enhance the group’s core capital ratio and the Bank for International Settlements (BIS) ratio," adding, "The raised funds will be used for operating capital and other purposes." Additionally, on the 4th of last month, Hana Bank disclosed that it decided to issue subordinated bonds worth 500 billion KRW. Combined, the capital expansion scale has already reached 1 trillion KRW.

KB Financial Group issued subordinated bonds worth 400 billion KRW on the 18th of last month. This is the first subordinated bond issuance since the establishment of the holding company. The initially planned issuance amount was 300 billion KRW, but due to strong interest from institutional investors, with a subscription rate of about 2.2 times (660 billion KRW), the issuance amount was increased.

Woori Financial Group successfully issued hybrid capital securities worth 400 billion KRW on the 6th of last month. In the demand forecast conducted on January 29th, effective demand reached 555 billion KRW, far exceeding the registered amount of 250 billion KRW in the securities registration statement, resulting in an additional issuance of 150 billion KRW. Woori Bank also plans to issue its first subordinated bonds of up to 300 billion KRW this year.

Shinhan Bank issued hybrid capital securities worth 290 billion KRW on the 25th of last month. The initially planned issuance size was 250 billion KRW, but due to active participation from institutional investors, the final amount was increased to 290 billion KRW.

The reason financial holding companies and banks are expanding capital like this is not only to improve financial soundness through enhancing the BIS ratio but also to prepare for domestic and international bank and non-bank sector mergers and acquisitions (M&A). Last year, the five major financial holding companies expanded their quasi-perpetual capital available for M&A to about 5 trillion KRW. This is why there are expectations that the M&A battle among financial holding companies to strengthen the non-bank sector, including the Prudential Life acquisition, will ignite from the beginning of the year.

Additionally, the active support for companies and self-employed individuals affected by the spread of the novel coronavirus disease (COVID-19) across the entire financial sector is also cited as one reason for capital expansion. In fact, on the 2nd, IBK Industrial Bank of Korea signed a committed line increase and extension contract worth about 600 billion KRW with Japan’s Mitsubishi UFJ Financial Group (MUFG) Bank and Mizuho Bank, explaining that the decision to increase the limit was made to respond to the expansion of domestic and international uncertainties such as COVID-19.

A financial sector official said, "The capital expansion scale of financial holding companies and banks has exceeded 2 trillion KRW in the first quarter of this year," adding, "As banks face limited growth, the search for breakthroughs through the non-bank sector is fierce, and with increasing domestic and international uncertainties, this capital appears to be for M&A as well as for funds to prepare for emergencies."

This content was produced with the assistance of AI translation services.